Post-FIRM homes will take lesser hit

It appears as though there is to be no Legislative fix this year for the pending drastic increases in flood insurance for some coastal properties.

The federal spending bill currently working its way through the process does not contain language that would delay the pending increase authorized by the Biggert-Waters Act of 2012.

That Act was meant to make the National Flood Insurance Program actuarially sound, according to official NFIP statements, but has had the effect of threatening flood insurance increase, drastic ones, on hundreds of thousands of coastal homes.

Flood insurance is a requirement for a federally backed mortgage. All of Monroe County is in a federal flood plain.

But the reality of the pending increases might not be as dark as once thought, says Sue Cherrybon, agent for Johnson’s Insurance on Big Pine Key.

“The biggest impact will be to homes built prior to January 1, 1975,” she said.

That date is considered the pre-FIRM date for the Federal Emergency Management Agency,the overseer of the NFIP. Under the terms of the NFIP, flood insurance is subsidized for pre-FIRM homes because they built before the establishment of FEMA and before the publication of flood zone maps when no specific flood-plain building guidance was available.

“The really big premium jumps are going to come for those pre-FIRM homes that are purchased after July 1, 2012,” said Cherrybon.

Before the new regulations in Biggert-Waters came into play, the federal government subsidized flood insurance for homes built pre-FIRM because the true rates would have been too much and the homes were grandfathered into the system by virtue of their build date.

“Homes built prior to 1975 have not been elevation rated historically,” said Cherrybon. “They have been rated by NFIP according to build date. Since 1975, homes in flood plain have been rated based on elevation above base flood.”

Base flood plain is the height above mean high tide that a 100-year storm surge is expected to produce. In many areas of Monroe County inland that base flood is about eight feet or so, with on-the-water properties varying by ground height but usually between nine and 12 feet.

Homes built after 1975 on stilts were routinely elevation rated by insurance carriers. “They are already actuarially sound rates and aren’t subject to the big jumps we’ve heard about,” said Cherrybon.

Fears that new flood rates may dramatically affect real transactions in the coming months are completely unfounded, but neither are they as fearsome as some seem to believe, says Cherrybon.

“If you sell your post-FIRM house today, since it’s already elevation rated, the new premium will be either exactly what is paid today, or slightly higher. Every flood policy is going to see the yearly premium increase, but for post-FIRM homes it will be what we’ve seen yearly for the last decade,” she said.

“It’s when a pre-FIRM house gets sold that the big jump comes in. Depending on whether the house was elevation rated or grandfathered, the jump can be huge as they bring pre-FIRM structures up to actuarially sound rates,” she added.

Pre-FIRM homes that are already elevation rated are already paying actuarial rates and the new premiums shouldn’t see a big jump.

Owners of pre-FIRM primary properties that don’t sell, change use, or allow the policy to lapse will continue to pay the rates in existence today with the yearly increases.

“It’s confusing to the agents, and I know it’s confusing to the owners, buyers and sellers,” said Cherrybon.

Any pre-FIRM home sold after July 1, 2012 will need an elevation certificate to renew the policy and the rate will be based on the elevation. The rate is based on the number of feet above base flood, with higher homes getting the best rate, but nothing counts above four feet over base flood. The rate goes no lower if the home is higher.

“The problem comes in when the home is below base flood and has been grandfathered in all these years. Below base flood structures are going to get hit hard on renewals,” she said.

She has one property that is in the sale process right now that is in just such a situation. The house is three feet below base flood elevation and the renewal rate to qualify for a mortgage will be $8,000 per year.

“Will that kill the deal? Maybe,” she said.

Second homes, rental homes and commercial properties that were built after 1975 are fairly safe from exorbitant increases, she added.

Pre-FIRM properties in that category, however, will see increases no matter what.

The Biggert-Waters Act calls for a 25 percent per year increase for second homes, rental properties and commercial structures built before 1975 until the rate is deemed to be actuarially sound.

“We haven’t yet been told what that actuarially sound rate is,” said Cherrybon. “We have to go for a quote to find out.”

She said she is sure that the new flood rates will affect rises in rentals as they take effect. “The landlord is bound to pass that rate increase along to the renter.”

There are also special circumstances for mobile homes, of which there are more than 5,000 in the Keys, some in parks, others on individual lots.

“If the park is pre-FIRM, every unit in the park is deemed to be pre-FIRM and has been receiving subsidized rates. Again, if the unit is sold, changes use or the policy lapses, the new pre-FIRM, unsubsidized rates will apply,” said Cherrybon.

For mobile homes on individual lots, the date of manufacture may apply if the home wasn’t raised above flood when placed on the lot.

“Again it depends on whether the pre-FIRM rate is used or the elevation certificate was used for the rating,” she said. “If you’re planning on razing the modile home and building new, make sure the house is at least four feet above base flood and you’ll get the normal rates we’re used to for a primary home.”

October 1 is the kick-off date for the new Biggert-Waters Act to take full effect. All policy renewals after that date will be subject to the terms of that Act.

“My advise to people thinking about selling is to get an elevation certificate for a pre-FIRM home and have the house re-rated based on the elevation certificate if it works out better for them,” she said. “The $300 or so for the elevation survey may well be worth it in the long run.”

Property owners in Key West are expected to be hardest hit in Monroe County where a majority of the homes were built prior to 1975 and are ground level.

“When they sell, they’re going to get hit,” said Cherrybon.

The purpose of the Biggert-Waters Act was to stop forcing the US taxpayer to subsidize flood premium rates for below-base flood homes.

“But its ramifications have reached much further than that,” said Cherrybon.

US Legislators have tried twice to get Congress to act on amendments to the Biggert-Waters that would force FEMA, through the NFIP, to delay the implementation of the act until an affordability study outlined in the original legislation is completed. That study could take up to two years.

That amendment has gained no traction despite intense lobbying of colleagues by Representatives and Senators from coastal states and locales.

Real estate industry professionals are concerned that the new guidelines could lead to a new round of property foreclosures as beleaguered property owners barely making mortgages now can’t sell due to drastic flood premiums and walk away from the homes, or second-home owners, unwilling to swallow the 25 percent jumps each year until the rate stabilizes, stop making mortgage payments.

Real estate professionals are also concerned that large commercial properties, which tend to be older than residential units, will not be able to sell due to increased flood insurance costs.

The only sure way to avoid flood insurance issues with a home is to pay off an existing mortgage, or buy with cash and not need flood insurance.